Crude has formed a new dance step that lightened all of our wallets in the past year. We’re all aware of the meteoric rise in crude oil prices but did you ever stop to notice the rhythm it follows? As a trader we see this every single day. They are called “technicals”. Support occurs when price stops depreciating and starts appreciating and resistance occurs when price stops appreciating and reverses to begin its depreciation. Notice the resistance become support very close to the large round numbers. 70, 80, 90, 100…etc. So now that you know the secrets of day trading; you ask, “What does it all mean?” We’re currently at $120/bbl. Based on technical patterns it would be logical to say price will return to $130-135 area before touching $110. After touching $110 we should see $120 again before we see $100. If you understand the pattern you’re guaranteed to test out of 2nd grade. Now that you know what makes the world go around you ask, “Why didn’t crude return to $140 after touching $130?” Well as you can see price bounced off $130 for two and a half days, but failed to rally to kiss $140 goodbye. There were so many sellers in the market they quickly ran over the buyers for lower prices. This is where experience comes in to play. In my limited experience on this rock hurtling through space at 18.5 miles per second I’ve noticed a couple things. Right now I’ll spare you everything but my trading experience. When a strong support level is broken traders will usually default to protocol on the next level. Since we broke through $130 like a smoldering lead balloon it would be logical to predict $120 will provide much more support and return us to tempo. Something I neglected to touch on is tempo. Price occurs on a scale of time just like everything we experience in the human condition. Some times are faster than others and some just take too damn long. At present crude has hovered near the $120 support for 5 days. Five days would be a reasonable tempo to stand on support. Price has returned to $128.50 since touching $120. Hey nobody’s perfect. Missing $130 by $1.50 might get you in the top 3 on Dancing With the Stars. The moral of the story is that the odds are stacked in our favor that we’ll see $110 in the next week.
